As the time approaches for borrowers to resume payments on their federal student loans, the IRS is reminding employers of a valuable way to assist their workforce.
Employers can extend a helping hand to employees confronting educational expenses by providing tax-free educational assistance benefits of up to $5,250 per year.
IRS Urges Employers: Offer Tax-Free Education Aid Amid Student Loan Resumption
This $5,250 threshold represents the federal limit on tax-free financial assistance employers can provide employees for qualified education expenses, including tuition and fees.
It is essential to observe that reimbursements above this threshold are taxable to the employee.
Although companies have been permitted to provide such benefits for a considerable time, it wasn’t until March 2020 that lawmakers expanded this provision to include tax-free subsidies that could be used to alleviate the principal and interest payments on federal and private student loans held by employees.
This opportunity, however, is limited, as the provision will expire on December 31, 2025.
Employers may structure their educational assistance programs at their discretion, choosing from the list of expenses deemed “qualified” by federal regulations.
Despite the potential benefits, it is evident that only some organizations have included student loan debt assistance in their benefit packages since its introduction in 2020.
The Society for Human Resource Management’s 2023 employer benefits survey revealed that only 8% of organizations presently offer student loan benefits to their employees, a figure that has remained the same over the past five years. 48% of respondents, in contrast, indicated that they provide tuition assistance.
The underlying causes of this discrepancy remain unknown. Concerned about the public’s limited awareness of this provision, lawmakers who advocate for tax-advantaged employer benefits to assist with student loan payments express concern about the lack of awareness surrounding this provision.
They have requested that the IRS increase its outreach efforts to rectify this issue.
To address this knowledge deficit, the IRS Commissioner, Danny Werfel, announced a free webinar to educate employers about this provision’s potential benefits.
The webinar is scheduled for September 14. Werfel emphasized that the IRS seeks to ensure employers pay attention to a strategy to improve their ability to attract and retain talented workers.
Read more: Former Ashford University Students Granted Loan Cancellation By Biden Administration
How Up to $5,250 Annually Eases Burden
Reimbursement of up to $5,250 annually (approximately $438 per month) can provide significant financial respite to individuals managing student loan debts.
Even monthly contributions of $100 or $200 can considerably impact their financial well-being.
As the lengthy pause in federal student loan payments closes, this becomes increasingly pertinent.
According to the Federal Reserve, these monthly payments will be between $200 and $299 before the payment suspension in 2020.
Those with private student loans will likely have an even more outstanding monthly financial obligation.
As borrowers confront the reality of resuming loan payments, the opportunity for employers to alleviate this financial burden through tax-free educational assistance benefits becomes a resource of increasing value.
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